I 111th CONGRESS 1st Session H. R. 2284 IN THE HOUSE OF REPRESENTATIVES May 6, 2009 Mr. Paulsen introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to allow individuals to defer tax on income reinvested in a partnership or S corporation.

1.

Deferral of tax on income reinvested in a partnership or S corporation

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139C the following new section:

139D.

Income reinvested in a partnership or S corporation

(a)

Exclusion from gross income of pass-thru income

(1)

In general

In the case of an individual, gross income shall not include— (A)any specified item of partnership pass-thru income, and (B)any specified item of S corporation pass-thru income. (2)

Limitation

The aggregate amount of items which may be designated by the taxpayer as specified items under paragraphs (3)(B) and (4)(B) with respect to any taxable year shall not exceed $250,000 ($500,000 in the case of a joint return). (3)

Specified item of partnership pass-thru income

For purposes of this section, the term specified item of partnership pass-thru income means, with respect to any taxable year, any item of income or gain which— (A)would, but for this section, be taken into account by the taxpayer under section 702 for such taxable year, and (B)is designated by the taxpayer as a specified item for purposes of this section. (4)

Specified item of S corporation pass-thru income

For purposes of this section, the term specified item of S corporation pass-thru income means, with respect to any taxable year, any item of income or gain which— (A)would, but for this section, be taken into account by the taxpayer under section 1366 for such taxable year, and (B)is designated by the taxpayer as a specified item for purposes of this section. (b)

No increase in adjusted basis with respect to items excluded from gross income

Any specified item which is not includible in the gross income of an individual under subsection (a) shall not be taken into account in determining the adjusted basis of such individual’s interest in the partnership or S corporation with respect to which such item relates. (c)

Regulations

The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section.

. (b)

Clerical amendment

The table of sections for part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 139C the following new item: Sec. 139D. Income held in a partnership or S corporation. . (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.